At the market close the benchmark S&P/ASX 200 index was down 213.70 points or 3.60 percent at 5,725.90, while the broader All Ordinaries index was down 206.50 points, or 3.44 percent, at 5,789.30.
"Volatility remains the key theme for the Aussie market with another big swing on the open this morning following a 3-percent rally yesterday and strong showing on Wall Street," Commsec market analyst James Tao said.
Financials were the biggest weight on the overall market, down over 5 percent, while industrials sank 4 percent and all other stocks were down in the order of 2-3 percent.
A speech by Reserve Bank of Australia deputy Governor Guy Debelle suggested the central bank would consider unconventional monetary policy, after exhausting the possibility of interest rate cuts, including buying government bonds to keep yields low.
"All this would squeeze bank margins and weigh on profitability, but Dr Debelle noted that those actions would support the Australian economy and hence support bank's credit quality," Tao said.
In the financial space, Australia's big banks plummeted with the Commonwealth Bank down (6.64 percent), ANZ down (5.54 percent), National Australia Bank down (6.26 percent) and Westpac Bank down (5.26 percent).
Mining stocks were mostly lower with Rio Tinto down (1.08 percent), BHP down (2.50 percent) and goldminer Newcrest down (8.61 percent), however Fortescue Metals was up (2.62 percent).
The country's oil and gas producers sank with Oil Search down (1.79 percent), Santos down (5.29 percent) and Woodside Petroleum down (4.55 percent).
Australia's largest supermarkets dropped with Coles down (1.80 percent), and Woolworths down (3.46 percent).
Meanwhile telecommunications giant Telstra sank (2.86 percent), the national carrier Qantas plummeted (9.21 percent) and biomedical firm CSL lifted (1.67 percent).
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